Inspiring young professionals to own and invest in real estate

They Bought Their Prebuilt Homes – Now They Face Financial Ruin

Thanks, T.J for forwarding me this article They bought their prebuilt homes at the market’s peak. Now they face financial ruin (click for full article) and asking me to comment on it. I figured I would share my response with you all on this blog. Feel free to connect with me and share your thoughts as well:

First, to put it out there, in a good market or in a downturn, the negative news gets many more viewers than the positive. If its booming we are in a bubble about to burst each year the prices increase, then if there is some slowdown its the end of it all and we are all doomed.

It’s an ongoing rollercoaster so stay out of the day to day news and focus on the overall market drivers and data.

I think when it comes to real estate, investing or otherwise, it is important to understand that there are market cycles; The Boom, the Slump and the Recovery. You need to prepare for it all by looking at the market fundamentals and weigh all the risks ahead of time and ahead of any purchase of this magnitude. There is a big difference between speculators and investors, I recommend you be the latter.

Do not buy on market appreciation and hoping things will keep going up. That should be a bonus but not an expectation. At some point, markets take a turn so even though Premier Wynne may have sped up this process one should plan this as a possibility regardless.

It is also important to look at history and by how much the market dropped and how long it took to recover. This is not the end of the world and you should not pause everything because of some news in the media. If you do you will be in the exact same spot 10 years from now. Just ensure you make calculated decisions.

As for homeowners, I think many people live way beyond their means to begin with (no matter what they say). Personally, we use one income to pay for our principal residence mortgage, not two and our house is small and although maybe it would be nice to upgrade…it’s definitely not needed. Be satisfied with what you have and stop stretching yourselves to the limit. If something happens such as these new rules and changes that pull the prices down, you will have a buffer. The fact that they couldn’t get financing to me means they were already stretching their limit.

I do not need a $1.6M house, there are plenty of nice houses and less expensive ones 30 minutes outside of Oakville or even some less expensive ones in Oakville. Even though the bank says you can buy a $1.6M house doesn’t mean you should go buy that much house.

As for the pre-construction market, I don’t think it’s either better or worse than buying an already completed property. Just keep in mind things change, have always changed and will continue to change so always have backup plans if things change for the worse. Stop stretching yourself and live below your means so that you can better withstand these changing conditions.

What are your thoughts on the article, I would love to hear in the comments below?